The tighter lending standards post the bank failures and the Federal Reserve’s resolve to bring inflation down further through interest rate hikes will likely lead to a recession this year. Minutes from the Fed’s meeting last month show that the staff believes there could be a mild recession this year.
Amid the economic uncertainties, investors may consider hedging their portfolios by adding dividend stocks. Walgreens Boots Alliance, Inc. (WBA) is a dividend aristocrat as it has increased its dividend for 47 years. The stock has also witnessed some insider buying lately.
In this piece, I have discussed whether this dividend champion is worth buying now.
Last month, CEO Rosalind G. Brewer bought 10,000 shares of WBA for $33.95 per share. WBA’s EPS and revenue in the second quarter beat analyst estimates. Its EPS came 4.6% above the consensus estimate, while its revenue beat analyst estimates by 3.9%.
CEO Brewer said, “WBA exited a solid second quarter with acceleration in February, adding to our confidence in driving strong growth in the second half of the year. With the closing of VillageMD’s acquisition of Summit Health, WBA is now one of the largest players in primary care, with best-in-class assets across the care continuum.”
“Both Walgreens and Boots are performing well by delivering compelling value to consumers, playing a critical role as community health destinations, and successfully navigating a challenging environment. We will continue to take bold actions to create sustainable long-term shareholder value,” she added.
WBA expects to close the acquisition of CareCentrix in the third quarter of fiscal 2023. The acquisition of CareCentrix is expected to expand the company’s reach into the growing homecare sector and will help it advance its long-term growth strategy.
On March 1, 2023, WBA announced that it sold 13 million Option Care Health, Inc. (OPCH) shares. The proceeds from the sale of shares will be used for debt payment and drive strategic growth. For fiscal 2023, WBA expects adjusted EPS of between $4.45 and $4.65.
WBA paid a dividend of 48 cents per share on March 10, 2023. Its annual dividend of $1.92 yields 5.51% on the current share price. The company’s dividend payouts have increased at a 1.9% CAGR over the past three years and a 4% CAGR over the past five years. Its four-year average yield is 4.17%.
WBA’s stock has gained 5.8% in price over the past month, while it has declined 23.6% over the past year to close the last trading session at $34.83.
Here’s what could influence WBA’s performance in the upcoming months:
Mixed Financials
WBA’s sales for the second quarter ended February 28, 2023, increased 3.3% year-over-year to $34.86 billion. The company’s adjusted gross profit declined 7.1% year-over-year to $7.16 billion. Its adjusted net earnings attributable to WBA declined 27.4% over the prior-year quarter to $1 billion. In addition, its adjusted EPS came in at $1.16, representing a decline of 27% year-over-year.
Mixed Analyst Estimates
Analysts expect WBA’s EPS for fiscal 2023 to decline 10.6% year-over-year to $4.51. On the other hand, its EPS for fiscal 2024 is expected to increase 6.9% year-over-year to $4.82. Its revenue for fiscal 2023 and 2024 is expected to increase 3% and 4.9% year-over-year to $136.65 billion and $143.32 billion.
For the quarter ending May 31, 2023, WBA’s EPS and revenue are expected to increase 14.3% and 4.8% year-over-year to $1.10 and $34.15 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters.
Solid Historical Growth
WBA’s revenue grew at a CAGR of 0.9% over the past three years. Its total assets grew at a CAGR of 3.7% over the past three years.
Mixed Valuation
In terms of forward non-GAAP P/E, WBA’s 7.73x is 59.7% lower than the 19.18x industry average. Its 0.55x forward EV/Sales is 67.8% lower than the 1.71x industry average. Likewise, its 0.22x forward Price/Sales is 80% lower than the 1.10x industry average.
On the other hand, in terms of forward EV/EBIT, WBA’s 15.84x is 3.1% higher than the 15.36x industry average.
Mixed Profitability
In terms of the trailing-12-month levered FCF margin, WBA’s 2.69% is 17.3% higher than the 2.29% industry average. Likewise, its 1.38x trailing-12-month asset turnover ratio is 60.8% higher than the industry average of 0.86x.
On the other hand, its 1.48% trailing-12-month Capex/Sales is 53.1% lower than the 3.16% industry average. Likewise, its 2.37% trailing-12-month EBITDA margin is 77.9% lower than the 10.72% industry average.
POWR Ratings Reflect Uncertainty
WBA has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. WBA has a C grade for Value, in sync with its mixed valuation.
It has a B grade for Growth, consistent with its solid historical growth. Also, its mixed profitability justifies its C grade for Quality.
WBA is ranked #3 out of 4 stocks in the Medical – Drug Stores industry. Click here to access WBA’s Momentum, Stability, and Sentiment ratings.
Bottom Line
WBA’s stock is trading below its 50-day and 200-day moving averages of $35.03 and $36.65, respectively, indicating a downtrend. The company’s EPS and revenue came above analyst estimates in the second quarter.
The recent insider buying of WBA’s outstanding shares by the CEO may indicate that the company might have solid growth prospects or is not richly valued, which the Street is yet to realize.
Despite its strong growth prospects and stable dividend payouts, it could be wise to wait for a better entry point in the stock, given its mixed financials, analyst estimates, profitability, and valuation.
How Does Walgreens Boots Alliance, Inc. (WBA) Stack up Against Its Peers?
WBA has an overall POWR Rating of C, equating to a Neutral rating. Therefore, you might want to consider taking a look at other medical stocks, Johnson & Johnson (JNJ), Bristol-Myers Squibb Company (BMY), and CVS Health Corporation (CVS), which have an A (Strong Buy) or B (Buy) rating.
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
WBA shares were trading at $34.43 per share on Thursday morning, down $0.40 (-1.15%). Year-to-date, WBA has declined -6.62%, versus a 8.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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